Thoughts From Joe - January 17, 2013

Top Eight

Job growth in December disappoints, primarily due to
weather. The economy added just 74,000 jobs
in December and the unemployment rate fell to 6.7 percent as many
dropped out of the labor force. One report does not make
a trend and there are other signals of health from the labor market
that allow hope for a continued recovery to remain. One
interesting note about December's data was the 273,000 people who
are estimated to be out of work due to the weather. As the
chart below shows, this is the largest number for December since
1977.

Source: Arbor Research

Stanley Fischer was nominated to be Vice Chair of the Fed under
Yellen. Fischer is the former head of the
Israeli Central Bank and a mentor to most mainstream central
bankers and wannabes including Bernanke, Yellen, Mario Draghi, and
Larry Summers. Fischer as number two at the Fed seems an
odd choice given his vast experience and accomplishments. It
may signal a lack of faith in Yellen from the Obama camp, but that
doesn't really matter now. What's important is how Stanley
Fischer sees his role at the Fed. Will he follow Yellen's
lead, swallowing his lifelong stature as a driver of policy, or
will he continue to be outspoken, particularly in areas where he
disagrees with the new Fed Chair? I don't have insight on
this yet, but I think we'll learn pretty quickly whether Dr.
Fischer intends to muzzle himself.

Stocks are off to a bad start as earnings season seems a bit
sluggish. Analysts estimate per share
profits in the S&P 500 to be up 6 percent on sales gains of
just 2 percent. Earnings growth estimates for 1 year in
the future have averaged around 12 percent over the last few years
only to come in closer to 4-6 percent when reported. For the
stock market to continue its rally, earnings will have to finally
appear this year. We are not off to a great start.

The bond business remains as opaque as ever. Regulators are investigating whether bond traders overpriced
securities during the crisis due to the illiquidity of certain
parts of the bond market. The price of a traded security
is widely accepted as either the last trade value or the current
bid/offer. When markets go illiquid, as the subprime mortgage
space certainly did, the price of individual bonds became whatever
the market would bear. When sellers panic (getting out of a
market) they get ripped off. When buyers panic (going into a
market) they get ripped off. Looking back from several years
in the future to estimate what "true value" should have been is a
very dangerous game.

Retail sales rose strongly in December in the face of bad
weather. Sales rose 0.7 percent during the
month after stripping away the volatile auto sector and were up 4.1
percent for the entire year. The consumer continued to
increase his engagement in today's economy even while employment
stumbled. The trend of steady positive growth remains in
place.

Volkswagen to invest $7 billion to expand manufacturing in North
America. Europe's largest automaker
reiterated its goal of selling 1 million Volkswagen and Audi cars
per year in the U.S. by 2018. While it isn't clear
whether the expansion will occur in the U.S. or Mexico, where they
currently have plants, it is clear that manufacturing is not "dead"
in the U.S. as so many have proclaimed. In fact, it is very
important that the U.S. retains a significant role in making goods
in order to provide more stability in the economy over time.
To date, the Washington establishment has not competed well for
these jobs.

Key Markets

Return

1/17/2014

1 week

Yth

Treasury

1/17/2014

1/10/2014

Change

Dow

16,459

0.1%

-0.7%

30yr

3.75%

3.80%

-0.05%

S&P 500

1,839

-0.2%

-0.5%

10yr

2.82%

2.86%

-0.04%

Nasdaq

4,198

0.6%

0.5%

5yr

1.63%

1.62%

0.01%

Euro Stox

3,154

1.6%

1.5%

2yr

0.37%

0.37%

0.00%

Nikkei

15,734

-0.9%

-3.4%

1yr

0.10%

0.11%

-0.01%

Hang Seng

23,133

1.3%

-0.7%

3mo

0.03%

0.04%

-0.01%

Source: Bloomberg

Looking Ahead

We are light on economic data next week with a primary focus on existing home sales Thursday.

Job growth in December disappoints, primarily due to weather. The economy added just 74,000 jobs in December and the unemployment rate fell to 6.7 percent as many dropped out of the labor force. One report does not make a trend and there are other signals of health from the labor market that allow hope for a continued recovery to remain. One interesting note about December's data was the 273,000 people who are estimated to be out of work due to the weather. As the chart below shows, this is the largest number for December since 1977.Source: Arbor Research

Stanley Fischer was nominated to be Vice Chair of the Fed under Yellen. Fischer is the former head of the Israeli Central Bank and a mentor to most mainstream central bankers and wannabes including Bernanke, Yellen, Mario Draghi, and Larry Summers. Fischer as number two at the Fed seems an odd choice given his vast experience and accomplishments. It may signal a lack of faith in Yellen from the Obama camp, but that doesn't really matter now. What's important is how Stanley Fischer sees his role at the...Read More